Chinese loans may put Bangladesh in debt trap

Highlights

China is arm-twisting Bangladesh to convert soft loans it offered to commercial credit.

Higher interest on Chinese loans could push Bangladesh into a debt trap like Sri Lanka.

Bangladesh signed $25 bn deals with China for nearly two and a half dozen projects last year.

Bangladesh has resisted the move to change pattern of loans for the projects which are part of grandiose OBOR ...Read More

(This story originally appeared in on Jun 17, 2017)

NEW DELHI: Lanka's estimated national debt is $64.9 billion, of which $8 billion is owed to China. China is arm-twisting Bangladesh to convert soft loans it offered -during President Xi Jinping's visit to Dhaka last year -to commercial credit (incurring higher interest rates) with apparently no headway into projects for which the amount was earmarked. Bangladesh, however, has resisted the move to change pattern of loans for the projects which are part of grandiose OBOR project connecting China with rest of Asia, Africa and Europe. Higher interest on Chinese loans could push Bangladesh into a debt trap like Sri Lanka.

It has been learnt that the Chinese proposal was made by Li Guangjun, economic and commercial counsellor at the Chinese Embassy in Dhaka, during a recent meeting of the Sino-Bangladesh Joint Economic Council. However, China later showed signs of softening its stance in the face of Opposition from Bangladesh, according to Dhaka-based persons familiar with the issue. Converting soft loans into commercial credit means Bangladesh will have to pay higher interest for the loan amount, Bangladesh officials told ET from Dhaka over phone. Bangladesh signed $25 billion deals with China for nearly two and a half dozen projects during President Xi Jinping's visit to Dhaka in October last year. Chinese officials have claimed that Beijing had not promised that all the projects signed between the two sides during the president's visit would be implemented on the G2G (government to government) basis. The Chinese officials believe that Bangladesh could jointly fund the projects. But Bangladesh government officials argue, when the agreements are signed at the level of leaders, especially in the presence of two heads of government, the loans are treated as soft loans. Compared to the Chinese approach India's support of $ 7.5 billion Line of Credit for slew of development projects are offered at a concessional rates. Interest rates of India's Line of Credit to the neighbouring countries are as low as one per cent or even less in some cases. China told Bangladesh that it a detailed list outlining how much of the $25 billion for 34 projects would be treated as soft loans, how much as commercial credit and how much to be contributed by the Bangladesh government.